First State Stewart Asia Investment Forum 2016 27 April 2016, Rosewood Hotel, London For professional clients only
First State Stewart Asia Investment Forum 2016 Chris Turpin, Managing Director First State Investments
First State Stewart Asia Investment Forum 2016 Michael Stapleton, Managing Partner First State Stewart Asia
First State Stewart Asia Team Structure Managing Partners: Martin Lau & Michael Stapleton Portfolio Management Portfolio Management Portfolio Management Hong Kong Singapore Edinburgh Andrew McKee 5/5 13/26 Scott McNab 14/16 Alistair Thompson George Pickard 1/1 1/7 Wee Li Hee 13/13 Naren Gorthy Gokce Bulut 5/5 1/1 Sreevardhan Agarwal Helen Chen 3/3 4/13 Vinay Agarwal Martin Lau 13/20 Quanqiang Xian 9/19 Richard Jones 6/28 Sophia Li 6/6 Winston Ke 1/8 Business Management Portfolio Implementation Team Assistants Hong Kong Alan Cheung 8/20 Hong Kong Charlene Zheng 4/7 Hong Kong Mary Tung 4/18 Jo Nhan 1/16 7/19 Eva Chung Venice Kan 3/17 Karen Choi 1/5 0/9 Vancy Leung Vera Ha 2/20 Michael Stapleton 17/19 Singapore Christina Choo 10/36 Singapore Celestine Wong 1/6 Edinburgh Fraser Wood 9/22 Edinburgh Christina Robertson 1/4 4 Numbers against each name indicate years with firm/years of industry experience as at 31 March 2016.
First State Stewart Asia US$20.9 billion Assets Under Management Asia Pacific US$ Asia Pacific ex Japan ex Japan 7,000 Select Leaders & All Cap Greater 50% 50% 6,000 China 5,000 4,000 Hong Institutional Wholesale/Retail Kong $6.4b 3,000 $5.8b $5.0b 2,000 $2.8b China 1,000 A-Shares India Japan $31m $477m $406m - OEIC OEIC OEIC Mandate Offshore Offshore Offshore Offshore Offshore Offshore 5 Source: First State Investments, USD AUM as at 31 March 2016.
Our Investment Style Martin Lau, Managing Partner First State Stewart Asia
Our investment approach Strong Absolute valuation return mindset disciplines Sustainable and Bottom-up predictable growth Quality Long-term companies 7
Investment style perspective as at 31 March 2016 First State Asian Equity Plus Fund Months of outperformance (%) 100% 90% 84% 80% 70% Months of outperformance (%) 61% 60% 50% 45% 40% 30% 20% 10% 0% Up Markets Down Markets All Markets 8 Source: Lipper. Months of outperformance vs MSCI AC Asia Pacific ex Japan Index calculated since fund launch on 14 July 2003. Provided in USD on a gross of fees basis.
Headwinds and Tailwinds Richard Jones, Director First State Stewart Asia
Headwinds & Tailwinds? “A tailwind is a wind that blows in the direction of travel of an object, while a headwind blows against the direction of travel. A tailwind increases the object's speed and reduces the time required to reach its destination, while a headwind has the opposite effect”. Wikipedia, the free encyclopedia • We like tailwinds and try to avoid headwinds • Market professionals and we have “predicted nine of the previous five recessions” • Difference between climate & weather? 10
We are bottom-up investors • Rule no.1: We don’t do macro • Rule no.2: See rule number one • JK Galbraith summed things up very well… “ We have two classes of forecasters: Those who don't know …and those who don't know they don't know ” 11
Another definition of macro? • A macro lens for big close ups? • We meet 1,000+ company management-teams in a typical year • Portfolios are the outcome • We look for specific bottom-up things. Quality is the one word summary • But, end up with some broad views/observations as well • Can I call it bottom-up macro? Source: Gettyimages. 12
Different, but the same? • The four most-dangerous words you ever hear in investing…” this time it’s different” • Okay, not Asian Crisis Two, but? • World trade growth and Asian exports continue Histor tory doe oesn’t repeat, t, b but t it t ofte of ten rhymes es to contract - Ma Mark k Twain in • Debt levels continue to rise everywhere, but especially in Asia and particularly China • Politics gets messier all the time, as an aspirational middle-class emerges 13
World trade growth (%YoY) 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Volumes, seasonally adjusted Values 14 Source: CPB Netherlands Bureau for Economic Policy Analysis, First State Investments, April 2016.
More debt and even more debt in GEM… Change in debt outstanding by country type 2000-07 (US$ 37 trillion) 2007-14 (US$49 trillion) 22% 47% 53% 78% Developing Advanced 15 Source: McKinsey Global Institute: Debt and (Not Much) Deleveraging, February 2015.
Some headwinds? • RMB weakness, collateral damage across other economies; exporters, technology, Taiwan (Brambles, TSMC, Delta, Asustek, Giant, Mediatek) • Light on China, light on domestic Australia • Balance sheets don’t matter until they’re the only thing that matters • Avoid assets/liabilities mix, stock-market exposure (wealth-management products) • Light on banks and residential property companies, particularly where regulation is less rigorous Source: Gettyimages. 16
More headwinds • Avoid doing business with Governments (toll- roads/concessions in general) • Liquidity likely to be more important than it has been. Watch investor concentration • Light on Asean, careful of lobster pots • Rebalancing economies usually takes decades and often brings social strife • Indian growth is lower than people believe, Source: Gettyimages. domestic consumption may be vulnerable 17
Any tailwinds?? • Guns & baked beans? (Gold & Newcrest) • Globally competitive Indian IT services and pharmaceuticals (Dr Reddy’s, TCS, Infosys) • Rising wealth and changing lifestyles, healthcare in general (CSL, Resmed, Raffles Medical) • Legal framework and regulation matter; Singapore & Hong Kong (SingTel & HKCG) • In times of adversity, corporate governance and integrity matters more than ever • Can we add to high quality cyclicals? Do such things exist? (LG Chemical, BHP?) Source: Gettyimages. 18
In macro we trust • Asia’s demographics & population growth • Still a lot of per capita upside in the longer-term • Emerging & growing middle class You ou s shou ould i invest f t from th the underpin rising consumption bottom ottom-up a and worry rry f fro rom t the • Cost structures and competitive position still top top-dow own attractive - Ano nony nymous • India still the easiest story to believe in, if you want to dream • Corporate balance sheets strong, governance/regulation is improving • Politics maybe relatively stable compared to the West? 19
MSCI Asia Pacific ex-Japan relative to MSCI AC World Index (1/1/2007 = 100) 140 130 120 110 100 90 80 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 MSCI AC Asia Pacific ex Japan relative to MSCI AC World Index 20 Source: Bloomberg, First State Investments, April 2016.
Asia Pacific, Emerging Markets and Global Price/Book MSCI Asia Pacific MSCI Emerging PBR MSCI World ex-Japan Markets Current 1.4x 1.4x 2.1x Price to Book (x) 10-year average 1.8x 1.8x 2.0x 4.5 20-year average 1.8x 1.5x 2.4x 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 MSCI Asia Pacific ex-Japan MSCI Emerging Markets MSCI World 21 Source: Bloomberg, April 2016.
Country breakdown – Asian Growth Fund as at 31 March 2016 Fund (%) Index* (%) Fund (%) Index* (%) Greater China 39.8 55.3 Indian sub-continent 27.0 9.5 China 4.6 28.1 India 27.0 9.5 Hong Kong 16.8 12.8 Taiwan 18.4 14.5 Australasia 5.3 0.0 Australia 5.3 0.0 South Korea 5.6 18.3 Cash 3.9 0.0 South East Asia 18.4 16.9 Indonesia 0.0 3.2 Malaysia 0.0 4.1 Philippines 1.0 1.7 Singapore 16.5 5.3 Thailand 1.0 2.6 Total 100.0 100.0 Source: First State Investments. Numbers may not add up due to rounding. 22
What really matters? A personal note… • We’re wrong as often as anybody else, but we know it and don’t make big bets on this basis • Not wanting to lose, versus winning, entail radically different approaches to Ever erything ng sh shoul uld be be made ade investment/life as si as simple as p as possi ssible, but but • Don’t waste time making elaborate forecasts, not ot simp imple ler look at the track-record. Find compounders - Al Albert Ein instein in • Most truly great ideas can be expressed on the back of a post-card in five minutes 23
…staying alive and not losing • Nobody reads annual reports, so read them • Governance is all that really matters for minority shareholders like us • Quality definition? How you behave when Ther ere ar are o e old d pilots s and and there re are e bold ld p pilo ilots, but t there re are re n no old the share price halves bold ld p pilo ilots • It’s always the quality of the people that - An n old d av aviat ation ada n adage make magical and sustainable returns happen • And of course, just as the trick in life is not to die, so the trick in investment is not to lose! 24
Company examples – India Sreevardhan Agarwal, Investment Analyst First State Stewart Asia
Recommend
More recommend
